New draft legislation designed to protect workers’ superannuation from phoenix companies has an excessively long lead in and also has vague requirements that could trap non-directors, according to Holding Redlich lawyers partner Jenny Willcocks.
Under the new legislation directors would be personally liable for unpaid superannuation guarantee (SG) payments from three months after the payment due date, while the Australian Taxation Office (ATO) could also target incoming directors 14 days after their commencement as well as associates of directors.
Because the SG is only required to be paid quarterly and the Australian Taxation Office (ATO) can’t pursue directors until three months after the due date of the payment, a potential six-month gap from when the initial money is earned is created. This seems like a generous allowance and could easily be reduced to 30 or 60 days, Willcocks said.
Conversely, a new director only needs to have been in the role for 14 days to be targeted by the ATO for overdue payments, and the onus is then on the incoming director to prove they were not aware that fraudulent activity was taking place, she said.
While this appears harsh, it seems to be aimed at incoming directors who are aware of the fraudulent activity and attempt to use this as an excuse, and it would be of more concern had if the ATO was not able to use its discretion in such cases, she added.
Under the draft legislation the ATO is also able to target the associates of directors of non-complying companies, if the ATO commissioner is satisfied that because of the individual’s close personal relationship with the director they knew or could reasonably have been expected to know of the company’s failure to make required payments.
But the ATO needs to ensure the associate has not tried to influence the director to make the missing payments, wind up the company or report the non-payment to the ATO, which means targeting associates may be difficult for the ATO to prove in many cases, Willcocks said.
Overall it is a positive move that the regulations are being tightened around potential phoenix activity, but the missing link is knowing how diligently this will be policed, although it is also possible that it may prove to be an effective deterrent, Willcocks said.
